US Rates Technical Report – RSIs Are Oversold, But More Pain Could Be Ahead
- By Richard Jones and Henry Occleston
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Summary
- Price action over the past week was negative as yields rose across the curve, with short-end prices underperforming those in the long end.
- RSIs across all the contracts fell, with all contracts below the 30 oversold threshold level. The exception is the TU RSI, which also declined but remains the least oversold, at 34.5.
- Experience of the last 12 months suggests futures prices will fall in the coming week across the curve, although we caveat that given the extreme lows in RSI, for some assets the sample size is very small.
Using Positioning Data to Find Key Futures Levels
We look at net positioning moves in our Cross-Market Positioning Report. Here, we use an alternative model for analysing CFTC futures data based on the key levels at which fast money net positioning has changed. Our aim is to identify support and resistance levels.
The current analysis suggests (Table 1):
- WN (115.44): the WN price fell from 116.5, with the yield up ~3.5bps, and the RSI falling to 25.4. The outlook for the next week is bearish – when the RSI has been at this level over the last year, prices have fallen 57% of the time. When you account for a falling RSI, prices have fallen 80% of the time the following week.
- US (111.00): as with WN, the US price fell over the past week, with the yield up about 5bps. The RSI also fell and is currently the most oversold of the contracts at 24.7. The RSI sits on the left-hand side of the 12-month distribution. As with WN, the upcoming week looks bearish, with similar probabilities of price declines as in WN.
- TY (107.33): the TY price was down over the past week (from 108.17), with the RSI falling to 27.2. The RSI sits on the left-hand side of the 12-month distribution. Of all the futures contracts, the week-ahead prognosis is the most bullish, with prices rising 67% of the time when the RSI was at this level (and also 67% of the time when the RSI was at this level and falling). A word of caution is needed, however. These conditions only occurred three times in the past 12 months.
- FV (105.43): Down from 106.00, the FV price fell concurrently with the RSI, which is now at 29.4. The RSI sits on the left-hand side of the 12-month distribution, and when at this level and falling, suggests a negative price move in the week following (59% of the time).
- TU (102.52): The TU price was down from 102.71, with the RSI falling to 35.9. The RSI sits on the left-hand side of the 12-month distribution. With the RSI at this level, the next week prognosis is inconclusive (prices rose 53% of the time). This is similar when taking into account the decline in the RSI (with prices rising 54% of the time the following week).
The below table is based only on the largest net changes. For a more detailed view of levels of net position changes, see the specific sectors:
WN Positioning
WN is trading at 115.44, down from 116.5 this time last week (Chart 1).
WN RSI indicators are bearish but should be taken with a pinch of salt given the small sample size. WN RSI at 26.8 sits in the left-hand side of the 12-month distribution (Chart 2). The RSI has closed in the current bucket 5 times in the last year while concurrently falling, after which the price has fallen 80% of the time the following week (Chart 2).
US Positioning
US is trading at 111.00, down from 112.16 this time last week (Chart 3).
US RSI is also bearish, but should be taken with a pinch of salt given the small sample size. The current RSI, at 26.4 is the lowest of all the contracts and is on the left-hand side of its 12-month distribution (Chart 4). The RSI has closed in this bucket while simultaneously falling 5 times over the past year, with prices down 80% of the time the following week (Chart 4).
TY Positioning
At 107.33, down from 108.17 last week, TY trades below a large buying cluster at 107.70 (Chart 5).
TY RSI prognosis on the surface looks bullish, but should be taken with a pinch of salt given the small sample size. The RSI, at 27.2, sits on the left-hand side of its 12-month distribution. The RSI has closed in this bucket while falling only 3 times over the past year, with prices rising 67% of the time the following week. (Chart 6).
FV Positioning
Trading at 105.43, down from 106.00, FV trades above a large buying cluster at 105.40 (Chart 7).
FV RSI is bearish. The RSI, at 29.4 is below the 30 oversold threshold level, and has closed in this bucket while falling 17 times in the past 12 months. Subsequent week price moves have been bearish, falling 59% of the time (Chart 8).
TU Positioning
At 102.52, the price is down from 102.71. The contract trades below a moderate-sized selling cluster at 102.55 (Chart 9).
TU RSI, at 34.5, is the highest of all the contracts, and the only contract above the 30 oversold threshold. The RSI sits on the left-hand side the 12-month distribution and in the past 12 months has closed in this bucket 34 times, rising 53% of the time the following week. When considering the fall in the RSI, the week-ahead saw prices rise 54% of the time (Chart 10).